I have met many aspiring entrepreneurs over the years. While some were quick to start their first business, most were struggling to get started. I have heard many reasons (some would say excuses) why they wanted to start a business but could not: lack of funds, not enough education or experience, or too busy with their job. But the one reason that comes up the most is finding the right idea. It is easy to convince someone that they can start a business without a Harvard MBA or a million dollars in the bank. But getting them to acknowledge they can find a good business idea is more difficult.
And I get that. I’ve been there, and I understand how this could be intimidating for many people. Finding a worthwhile business idea takes hard work, but luck also plays its part, which can be frustrating. In this article, I’d like to discuss how aspiring entrepreneurs can actively search for business ideas instead of waiting for the perfect business plan to appear out of thin air.
I will talk about two ways to find business ideas, with a lot of overlap between observation and research. You can observe your environment (your own habits, actions, and needs, but also your friends, coworkers, family members, etc.) to find ideas that will help you start your research and see if the ideas make sense. Alternatively, you can pick an industry, a market, or a product, and start investigating untapped potential. I don’t think there is a better way to find ideas, and the two are not mutually exclusive.
Observing your environment
Many great businesses started because of a problem the founder was personally facing. I like the example of Netflix. Reed Hastings founded the company in 1997. Most people know Netflix for their streaming services, but the company started with something else. The founder regularly rented DVDs at stores like Blockbusters but was frustrated with the fees for returning the DVDs late. He thought he probably wasn’t the only one annoyed with these late fees and started Netflix. The original business was about mailing DVDs to customers, so they wouldn’t have to drive to a store to return the movies. The company later adapted its offer to changing customer habits and new technologies.
Every time you start thinking, “I hate when…”, there might be a business idea. Someone probably hated being wet when walking in the rain, then invented the umbrella. William Lyman invented the modern can opener because people hated opening cans with a hammer and a chisel.
Sometimes, ideas start with a wish rather than frustration. “It would be nice if…”. Another example I like is the Walkman, created by Sony. One of Sony’s founders, Masaru Ibuka, thought that listening to music on a flight without disturbing other passengers would be nice. Decades later, millions of Walkmans were sold: a light, portable sound system that could be easily carried on a flight.
The process goes like this. You start observing something and realize there is a need for a solution to a problem or a way to make life better. (“I hate being wet when walking in the rain”) Then, you imagine the solution. (“I’d love to have some kind of lightweight, portable roof… maybe on a stick?”). You do research to see if it already exists (and even if it does, maybe the existing solution can be improved), and if you still see the idea as worthwhile, come up with a complete business plan to answer other questions (how to source the product, profitability, how to advertise, etc.).
Another way to find business ideas by observing our environment is to imagine how new technologies can be used. Sometimes, new technologies look great on paper, but they have no practical business uses. These new, unexploited technologies could be opportunities for new businesses. For example, live video streaming has become more accessible in the last two decades. This allowed companies like Netflix or Twitch to create unique offers and make money off the new streaming capabilities.
Paying attention to what happens in your daily life, listening to others and their frustrations, or reading the news can help you find ideas. You probably won’t find the right idea overnight, but as explained here, many of the world’s greatest successes happened when their founder expressed frustration or a wish.
Researching an industry and creating value
The other way to find ideas is to look at an existing industry and try to find an opportunity. It is a lot easier if you already have knowledge of this industry, its actors, processes, and cost structure. If you’re a newbie to an industry, it can still be done with a bit of research. I listed a few things entrepreneurs can look at, but the list is not exhaustive. The point is any absence or inefficiency in an industry can be exploited to generate business ideas and create value. In some cases, it can even give ideas to create whole new industries. Of course, not all of them will be worth pursuing, but it is a good starting point.
Studying strategic groups
In an industry, strategic groups are groups of businesses following a similar strategy and making a similar offer. A good example would be to look at the food service industry, more specifically, casual dining and fast-food restaurants.
Fast food restaurants are cheap and ask for a short-term commitment, but the perceived quality of the food is relatively low. On the other hand, casual dining is more expensive, with a longer commitment (which isn’t necessarily bad if you want to spend time with your friends), and the perceived quality of the food is higher. The strategic group map would look like this:
We have seen a new concept emerging in the past two decades: Fast Casual Dining. To roughly summarize, these restaurants are nicer than in fast-foods, like McDonald’s or Wendy’s, but still far from fine dining. Think Chipotle or Panera bread. This concept combines the convenience and low prices of fast-food with a nicer sit-down experience.
The prices are usually slightly higher than in fast-food restaurants, but nowhere near the prices of casual dining, and the perceived quality of the food is better than fast food. Fast casual restaurants tend to offer made-to-order food with limited service or self-service. The strategic group would now look like this:
Businesses like Chipotle or Shake Shack managed to combine the best features of both strategic groups, fast-foods and casual dining, to create a whole new group. This has been a success, and we see new Fast Casual restaurants emerging every year. There might be some big opportunities in industries where all the strategic groups are far apart, and customers don’t have many good alternatives.
Offering complementary products
During the California gold rush in 1850, a few miners got lucky and found enough gold to make a fortune. Digging for gold was the hot business at the time, and over 250,000 miners arrived in California between 1848 and 1853. However, another group made it big: those who sold shovels, picks, and pans.
The emergence of a new trend can create opportunities for complementary products. For example, during covid lockdowns, people could not go to their favorite restaurants. As a result, sales of barbecue grills soared, and people started inviting their friends to grill at home. Sure, selling grills sounds like a good idea. But some entrepreneurs had a different idea and started selling high-end spice mixes and barbecue sauce. This way, customers could try to recreate the recipes they had at restaurants.
Offering valuable differentiator
The idea seems simple, creating value by offering a unique value proposition and differentiating from the competition. However, it can be a bit more complex in practice. The easiest way to explain this concept is to use the value curve framework from the Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne (a book I absolutely recommend). Let me give you an example based on the first business I started.
Years ago, I created a nutritional supplement in France designed to help office workers and students work longer and focus better. At the time, this type of supplement was not popular, only available online—barely, and came from foreign companies that did not always comply with local regulations. Its main competitor was energy drinks. The value curve of both products would look like this:
There are similarities, but also large differences between both products:
- The pills are a much more economical solution. The cost per use was close to €0,50, compared to €1,50 to €2 for popular energy drinks.
- The caffeine content per use is about the same.
- Obviously, the pills have no taste and won’t quench thirst.
- A pill is quick and easy to consume, but most people need water to take a pill. On the other hand, drinking from a can is easy but can be annoying. Some people don’t want to drink 16oz of liquid to have their caffeine fix.
- I decided to include ingredients to help people focus. This way, in addition to the energy boost, the supplement was designed to help people use that energy to be more productive.
Different people have different needs. My goal wasn’t to replace energy drinks but to sell a solution that was better for a specific demographic, in this case, office workers and students. Some customers loved the taste of Red Bull and were not interested in my product. But my supplement was a reasonable option for others who liked the energy yet were looking for a more cost-competitive solution.
I achieved this differentiation by:
- Keeping important features (caffeine content)
- Improving some aspects (making it more cost-competitive)
- Compromising on some features (by not making it a drink, so it didn’t have to taste good or quench thirst)
- Adding new exclusive features; in this case, the focus ingredients.
Of course, that is only one example, but it illustrates what can be done. You can take a product and ask the following questions:
- What can be improved?
- What should remain the same or can be diminished?
- What can I remove?
- What features can I add?
Sometimes, it does not take a lot to create value for the customer and differentiate the product from its competitors. For example, adding a small magnet into a bottle opener, so the cap stays stuck to the bottle is a clever way to ensure the cap will not fall and roll under furniture.
In some cases, this can result in a superior value proposition, or at least something that would be considered superior by a subset of the target demographic.
Changing the business model
If a business model dominates an industry, there might be potential to differentiate by addressing other business models. A good example would be Etsy, the marketplace for handmade items, art and craft supplies. The idea came from Robert Kalin in 2005, who struggled to sell his handmade furniture online. The platform became a huge success, and by 2007, 450,000 registered sellers were generating $26 million in annual sales.
Instead of trying to craft the perfect website to sell Robert furniture, the founders created a platform that allowed other sellers to sell their items. They moved from the B2C model, the furniture being the product sold, to C2C, the marketplace being the product. This allowed them to generate money with advertising and selling fees. Etsy revenue for 2022 is over $2B, certainly more than what they would have made if they kept trying to sell their handmade furniture.
Using a different business model means making the right adjustments. For example, a company doing B2C sales and who wants to expand to B2B sales will probably need to hire a salesforce with a different skill set. It doesn’t guarantee success (there might be good reasons why certain business models are not popular), but can be something worth investigating.
Emotional vs utilitarian products
As you already know, some products are mostly utilitarian, where people care more about their function, features, and price; for example, office supplies or construction materials. Other product purchases are more emotionally driven—a slice of chocolate cake isn’t always the most rational choice, but emotions are what sells the product. The plan here is to either add a layer of emotion to utilitarian products or to turn a more emotional product into something more utilitarian.
Toothbrushes were always a more utilitarian product; people were looking for a good quality brush that would do the job. The brand Quip did more than create a good quality toothbrush; they created something different. The product is sold through a membership, and customers receive supplies periodically, as well as recommendations. They changed some technical features (such as using vibration on their electric brush instead of a rotating brush) but also differentiated themselves from the neon-colored brush most people buy. Finally, the company came up with a sleek design; their toothbrush almost looks like it was designed by Apple. This helped Quip create very effective traditional marketing campaigns and work with trusted influencers in the healthcare industry, like doctors and dentists. As a result, the product became a success due to the emotional response generated by the sleek design, the clever marketing, and the relationship built with trusted professionals endorsing the product.
On the other hand, some companies cut the emotional fluff and focused on selling a more utilitarian product. The skincare industry typically relies on a mix of emotions and science to sell its products. The relatively new brand The Ordinary does something very different. They are selling no-nonsense products at a fair price and don’t hide behind fancy marketing terms. Their products have scientific-sounding names like “Niacinamide 10% + Zinc 1%”, so the customer knows exactly what they are getting. They aren’t selling magic potions; they’re offering something real.
I personally used an approach that differs from The Ordinary but was successful. The Ordinary was in an industry where competitors were selling products with magical-sounding names and sold products under their technical name (what the product really is). I did the opposite. In the nutritional supplement industry in my local market, the vast majority of my competitors used technical names like “Caffeine+Green Tea Extract pills”. I decided to name my product after the main benefit of its consumption; for example, “Focus One” for something that helped users focus longer (of course, the ingredient list was on the label).
It is important to understand that I am talking about the whole product value proposition and brand identity, not just coming up with a clever marketing campaign once in a while. Many brands can devise great commercials that trigger powerful emotions in their audience, but the product itself does not reflect that. This strategy is what makes companies like The Ordinary or Quip so unique and contributes heavily to their success.
While I couldn’t list all the ways new products are developed, you can see that there are many ways to find ideas. It is still very difficult to find the product to sell, but studying existing successful brands and being open-minded can go a long way.